How Nintendo’s Bad Business Created Their Competition

Nintendo has been a household name since they released their first home gaming console in 1985 in the US. The Japanese based company has proven its staying power recently with the Switch, a console that rose from the ashes of the failed Wii U. The Switch is a great example of Nintendo’s ability to bounce back from failure and learn from their mistakes but the Wii U was far from Nintendo’s first mistake.

Fans who were around in the 90s probably remember Nintendo’s biggest failed console, the Virtual Boy. The little, red system was awkward and hard to play comfortably. If you played it too long it hurt your eyes and it even caused headaches. Only 14 games were released for the Virtual Boy in America before it was discontinued. Its failure caused Gunpei Yokoi, the creator of one of the best-selling game console of all time, the Game Boy to leave Nintendo forever.

As big of a failure as the Virtual Boy was, at the very least all it did was hurt Nintendo. It didn’t help their competition. Many of Nintendo’s lesser-known mistakes didn’t hurt them so much as help their competitors. From the very beginning of their successful run on top of the gaming market, Nintendo has a history of empowering and even creating some of their biggest competition. Today I’m going to take a look at all those decisions Nintendo probably wishes they could take back.

Sega & The Beginning of the Third-Party Divide

In 1986 Sega released the Master System in America and while it had some success, it failed to compete with Nintendo. The Master System’s biggest fault was a lack of third-party developed games. Third-party developers were scared of putting out games on the Master System out of fear of hurting relations with Nintendo. Most of their money came from sales of their games on the Nintendo Entertainment System so it simply wasn’t worth the risk of angering Nintendo by working with their competition. Sega’s luck would change going into the 90s as frustrations built towards Nintendo’s business practices.

The License Agreement From Hell

Nintendo’s third-party license agreement for the NES could be best described as brutal. If you wanted to publish on the NES you had to buy the cartridges and computer chips from Nintendo. This caused a lot of frustration between them and third-party developers because of Nintendo’s prices. During the computer chip shortage of 1988 developers were told that they wouldn’t be getting as many chips as planned. Some companies tried finding their own chips but those who did found that their chips weren’t up to Nintendo’s standard. The chip shortage hurt sales and Nintendo’s reputation.

Nintendo also limited how many games a company could put out. Third-party developers were only allowed to publish five games a year. Many bigger companies got around this by publishing games under subsidiaries like LJN and Ultra Games. Nintendo could also change their games if they saw fit. This usual meant the removal of blood and other violent imagery. Games published on the NES were also exclusive to Nintendo for two years, further limiting developers chances for profit.

Nintendo Fought the Law & Sega Won

On top of their totalitarian like licensing agreement, Nintendo started trying to control the gaming market in the courtroom. Nintendo unsuccessfully sued Galoob over the Game Genie and tried to shut down the video game rental market in court. One case Nintendo did win was their fight was Atari Games’ Tengen and their bootleg NES cartages. One thing was made clear, as far as Nintendo was concerned, it was their way or the highway.

As Nintendo was on its war path, Sega was building itself a reputation of being much easier to work with. Third-party developers found them to be way less restrictive and many became eager to work with Sega. They made Tengen and Game Genie officially licensed Sega products and worked well with rental outlets. By the time Sega released the Genesis in 1989 they were firmly positioned as competition for Nintendo. Had Nintendo treated their third-party developers better from the start would Sega have gained their footing in the market? We’ll never know.

The Nintendo Play Station

In 1988 Nintendo became interested in developing CD based gaming and made a deal with Sony to develop the technology. The two companies eventually settled on a system that would play Super Nintendo cartridges and new CD games. The system was dubbed the Nintendo Play Station. This system was pretty far into development. So much so that a working prototype was recently discovered.

Nintendo’s Cold Feet Leads To Betrayal

As the Play Station’s release came closer Nintendo became uneasy with the deal. Sony would have complete control over all the CD games licensing and manufacturing rights. Nintendo was worried that Sony would use this deal as a backdoor into the gaming industry. After years of doing business with Sony, Nintendo met with their rival Philips in secret. Philips would help Nintendo make their CD add-on for the SNES. In return, Philips would get to make games using Nintendo characters for their own console, the CD-I. They never did get their SNES add-on but the CD-I did see three terrible Zelda games and one mediocre Mario game.

Nintendo didn’t even bother telling Sony that their deal was off and at The Consumer Electronics Show in 1991 Sony announced plans for the Nintendo Play Station. A day later Nintendo responded by announcing their deal with Philips. Nintendo had humiliated Sony on a grand stage for seemingly no reason. Sony picked themselves up and made plans to release the now Sony Playstation on their own. The formed Sony Computer Entertainment and in just a few short years released the Playstation, Nintendo’s biggest competition to this day.

The Cartridge That Broke Nintendo’s Back

Despite showing interest in CD gaming nearly a decade earlier, when it came time to put out the Nintendo 64 they stuck with cartridges. They said it was to prevent loading time and pirating but it was really to keep making that cartridge money. That’s what some third-party developers thought anyway. Cartridges cost up to $10 to produce and had to be purchased through Nintendo. On top of that, the technology was obsolete and would only become more obsolete before the console’s lifespan was even up. After over ten years of harsh standards and practices, the decision to stay with the more expensive and obsolete cartridges lead to many major developers walking away from Nintendo.

Nintendo gave Sony all the power it needed to overpower them. It was much cheaper to produce games for the Playstation. Games on the Playstation could also utilize full-motion video. Many developers went over to Sony, most notably Squaresoft. With all the best RPGs, Sony dominated the Japanese market and with more adult titles like Tumb Raider and Twisted Metal, along with the Japanese imports, they dominated the US and European markets as well.

The King Gets Pushed Off The Hill

The Nintendo 64 was in not way a failure. It made a lot of money and is remembered fondly to this day by those who grew up with it. That said, it was the first time in Nintendo’s history where they didn’t have the #1 console in the world. It’s estimated that the N64 sold around 33 million units. In comparison, Sony sold 102 million units. Nintendo was handily outsold by a monster it created and armed to the teeth. It wouldn’t be the last time Nintendo’s poor choices would empower Sony either.

Handing Sony Its Biggest Gun On A Silver Plater

When Nintendo began work on the N64’s launch they assembled a group of third-party developers to get in on the ground floor and put together some launch titles. One of those developers was the Scottland based DMA Design who despite being a smaller company had gained some acclaim. They were most well known for their Lemmings series but they also had a passion for more adult shooters. DMA’s idea was for an open world shooter titled Body Harvest. An ambitious game with a more adult tone than anything else in development for the N64. Nintendo must have seen something in the project because they continued to fund it even though it wasn’t going to make the N64’s launch date.

The Nintendo 64’s Problem Becomes DMA’s

For the first time ever Nintendo’s home console was struggling in the Japanese market. As said before, Japanese gamers love RPGs and the N64’s launch noticeably lacked anything even resembling one. Nintendo’s resources were focused on other projects so they couldn’t begin work on a whole new RPG. Instead, they told DMA to turn their Body Harvest into an RPG, even though in its current state it was nothing like an RPG. DMA didn’t like the idea but they were afraid of losing their funding so they agreed. The project was a mess from that point on.

DMA had to scrap much of what they had finished and start from scratch. Nintendo sent some of their programmers over to help but it didn’t do much good due to langue barrier issues. The development team traveled back and forth from Japan and Scotland and got very little done. DMA also struggled with contradictory messages from Nintendo of America and Nintendo Japan. With all the conflicting notes and breakdowns in communication, DMA was unable to produce the game in a timely manner and Nintendo pulled funding. Body Harvest was eventually finished and released but it wasn’t anywhere close to what it was meant to be.

DMA was financially ruined after the Body Harvest debacle and was sold to Gremlin Graphics, they were down but not out. DMA pushed on and made several games for the Playstation. After rebranding they took concepts and ideas Body Harvest lost when Nintendo messed with it and used them on a bigger scale for the follow-up to one of their newer game series. In October of 2001 DMA, now Rockstar North released Grand Theft Auto III for the Sony Playstation 2. GTA3 sold over 17 million copies and was the highest selling game of 2001.

Sony Tops Nintendo Again

The Grand Theft Auto series helped Sony’s Playstation 2 become the highest selling gaming console of all time. Sony’s PS2 sold 155 million units. In comparison, Nintendo’s GameCube only sold 21.74 million, their lowest numbers ever for a home console until the Wii U. For the second straight generation of consoles, Nintendo was eating Sony’s dust and it was their own fault.

Has Nintendo Finally Learned From Their Mistakes?

Make no mistake, the Wii U was a wake-up call for Nintendo. It only sold around 13 million units and much of that had to do with confusing marketing and a severe lack of third-party support. The first Wii should have been a wake-up call. Despite its success, Wii users didn’t buy many games for the console as many saw it more as a novelty piece than something they used regularly. The bottom line is, it’s been a very long time since Nintendo has stood on equal footing with its competition in the home console market. If it hadn’t been for their continued innovation and success in the hand-held gaming market Nintendo might not still be in the console making business today.

The Switch brings new hope for Nintendo. They’ve seemingly combined the home gaming market with the hand-held, portable gaming market and they have hype on their side. Their new system offers something their competition doesn’t and this time people are excited to play more than just a sports simulator on it. On top of having a system people actually want to play, Nintendo has also made deals with third-party developers like Bethesda to bring games Nintendo loyalists have never seen before. The Switch could very well be the comeback Nintendo wants it to be, so long as they remember their mistakes and don’t repeat them. Just remember, had Nintendo treated their business partners and developers better they might not have as much competition and the video gaming scene would probably look very different today.

What do you think of Nintendo’s troubled history? Are you excited for the Switch? Let us know in the comments.

How Nintendo’s Bad Business Created Their Competition was last modified: April 17th, 2017 by David Hayes